Calculate your operating expense ratio to measure business efficiency. See how much of your revenue goes to operating costs and break down spending by category.
Gross revenue for the period
All employee compensation
Office, warehouse, retail space
Advertising, content, events
Electric, internet, phone
Business insurance premiums
Supplies, travel, subscriptions
Operating Expense Ratio
70.0%
Total Operating Expenses
$140,000
Remaining Revenue
$60,000
5% Cost Reduction
66.5%
new OER
+$7,000
annual savings
10% Cost Reduction
63.0%
new OER
+$14,000
annual savings
15% Cost Reduction
59.5%
new OER
+$21,000
annual savings
Strategy: Reducing operating expenses by 15% would improve OER from 70.0% to 59.5%.
Your OER of 70.0% is healthy for a mid-sized company.
Target Range
50-70%
Optimal OER for profitability
Recommendation: Your OER is within the optimal range. Maintain current efficiency levels.
The Operating Expense Ratio (OER) divides total operating expenses by gross revenue to show what percentage of every dollar earned goes to keeping the business running. A lower ratio means more of each revenue dollar flows to the bottom line. Tracking OER over time reveals whether your business is becoming more or less efficient as it grows.
It varies widely by industry. Software companies often have OERs of 70-85%, retail businesses 90-95%, and real estate 35-45%. The key is comparing your OER to industry benchmarks and tracking improvement over time. A declining OER generally signals improving efficiency.
Operating expenses include rent, utilities, payroll, insurance, office supplies, marketing, professional services, maintenance, and any other costs of running the business day-to-day. They exclude cost of goods sold (COGS), interest, taxes, depreciation, and amortization.
OER focuses specifically on operating costs as a percentage of revenue — it tells you how efficiently you run the business. Profit margin includes all costs (COGS, interest, taxes). You could have a good OER but poor profit margin if your COGS is too high.
Either increase revenue (scaling without proportional cost increases) or reduce operating expenses (negotiate better rates, automate processes, reduce headcount, move to cheaper space). The most sustainable path is usually growing revenue faster than expenses.
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